The Unbanking of America – And What to Do About It: A Conversation with Lisa Servon

High monthly fees; hefty overdraft charges; other consumer-unfriendly practices: They’re ways traditional banks hurt low- and middle-income customers. And they’re why millions of Americans instead organize their financial lives around check-cashing stores and the payday lenders who make short-term, unsecured, high-interest loans. Lisa Servon, a former dean at The New School who now teaches city and regional planning at the University of Pennsylvania, talked with Urban Matters about The Unbanking of America, her new book mapping this terrain; her first-hand research included months of working behind Plexiglas dividers as a check-cashing cashier in the South Bronx and for a payday lender in California.

UM: Your book starts with your warm childhood memories of getting your first bank savings account. Will major banks ever be good to small account holders again? Or are those days gone and not coming back?

Servon: Well, they could do a much better job serving small account holders, but they don’t have much incentive. It’s not where the money is. Banks have shifted from making much of their income from interest to relying more on fees. Banks made more than $32 billion in overdraft fees last year. Those fees are on the rise, along with monthly service charges, ATM fees, you name it.

In my book I write about Key Bank, which is doing much more than most banks to provide safe, affordable financial services to its customers. Part of me hopes other banks will see what Key is doing, while still making a good profit, and follow suit.

But honestly I’m not that optimistic that banks will change their business models. They’ll only do it if they’re made to do it, by government. Or by large numbers of consumers taking their money out of banks. That’s something people can consider. There’s a button on my website, lisaservon.com, called “How to Leave Your Bank.” It’s not that hard.

UM: Speaking of government, let’s talk about the President’s pledge to overhaul the Dodd-Frank Act (the Federal banking reform law passed after the 2008 financial market meltdown), which set up the Consumer Financial Protection Bureau (CFPB). How do you see this playing out?

Servon: I think it’s really bad news for consumers when it comes to the way banks have become more expensive, less transparent, and less service-oriented.

I’m particularly concerned about the CFPB, which has returned nearly $13 billion to 27 million consumers who were bilked by financial services firms acting illegally. The CFPB is important because it does two things no other Federal regulatory agency does. First, its core mission is consumer protection. And second, it has authority over the whole range of financial services providers, including banks, payday lenders, mortgage companies, and credit bureaus.

It’s unlikely that the CFPB will be eliminated, but its power can be radically reduced. For example, the current funding for the CFPB comes from the Federal Reserve and is not subject to Congressional appropriations. Agency opponents want to make the budget go through the appropriations process, and this could radically reduce its funding. To put the numbers in context, the entire CFPB budget was less than 2 percent of JP Morgan Chase’s litigation budget in 2013. It’s not exactly a model of government bloat. We’ve got to make sure people know what the CFPB does and what it has done for so many people. We need to get the word out that this is an important agency, and that it’s under threat.

UM: Your book says we need a popular movement supporting financially struggling Americans. But you also describe how people hide the extent of their consumer debt from a sense of shame; they think their predicament is their fault. Won’t that prevent building a popular movement?

Servon: Not necessarily. I think you can start with people who have been cheated by financial services firms and those who are suffering because of economic changes-- people who are working part-time jobs, because there aren’t as many full-time, salaried, positions, people whose education, child care, and medical costs have risen incredibly. That’s a shared story that can unite people. There are also lots of ways people can support a different agenda without exposing details of their own situations. I have a Tumblr site called Money Stories (moneystories.tumblr.com) that collects individuals’ stories anonymously. When you get a critical mass of them the whole can become quite powerful.

UM: What role can local governments play in ensuring better financial health for Americans?

Servon: There’s a lot of potential for state and local governments to act in this space. There’s an organization called Cities for Financial Empowerment that’s working to create policy tools and resources. It’s headed by Jonathan Mintz, a former New York City Commissioner for Consumer Affairs. San Francisco just created a Director for Financial Justice. She is Anne Stuhldreher, who is doing amazing work figuring out how government participates in financial instability through, for example, fines and fees that hit people of color disproportionately. We saw that in Ferguson, Missouri, and it’s happening in a lot of other places. Cities and states can absolutely mandate greater transparency on the part of financial services providers.

UM: Your book says that well-meaning consumer advocates who call check-cashing stores and payday lenders predatory don’t understand the financial pressures low-income people face and why relying on such businesses makes more sense than having a checking account or running up credit card charges. You show why even middle class people, like construction contractors, use check-cashing establishments. What’s the takeaway from that?

Servon: The big lesson is that we need to understand individuals’ motivations for doing what they do, and you often have to go out and get on the ground level to figure that out. The narrative about the “unbanked” implies that people who don’t have bank accounts are making bad decisions. That’s based on some terrific quantitative data. But there are also incorrect assumptions and unfair judgment embedded in the interpretation of that data; it did not sufficiently take into account why people make the choices they do. Yes, we need the quantitative data, but we also need to understand peoples’ stories, their lived experiences, in order to understand the complete picture.

UM: Have the months of research you did as a check-cashing cashier and payday loan collector influenced your classroom teaching style?

Servon: It has. I’ve always thought of my classroom as a permeable space in which people from outside the university come in to talk with my students, and I get my students outside of the classroom as much as possible. I’m now working to take that a step further, and creating opportunities for my students to engage with communities, on the ground, in new ways. My students are getting professional degrees in policy and planning. We’re giving them a set of tools and proclaiming them “experts” upon graduation. I want to make sure their toolkit includes understanding how to learn from the communities their work will affect. And that takes as much practice as learning statistics.

UM: How has your book been received? What’s next on your agenda?

Servon: I’ve heard from credit unions, policy makers, and others eager to learn more and to figure out how to apply lessons I lay out in the book. I’ve gotten a lot of opportunities to work on different aspects of this problem. One way or another, it will be about creating a more just, ethical financial services industry.

Lisa Servon is a professor of city and regional planning at the University of Pennsylvania.